In these tough times, where companies are closing shops and banks stuttering as a result of an economic slowdown, Financial Derivative Company Limited (FDC), a renowned investment house, have placed a Buy ratings on the stocks of United Bank for Africa (UBA).
This is because the lender with 19 branches spread across Sub Saharan African has been consistently growing at both the top and both lines since rebounding from a loss position in 2011.
FDC says the bank has a solid risk management strategy that translates in a Non Performing Loans (NPLs) of 1.7 percent, despite the industry’s exposure to the oil and gas.
It should be noted that the NPLs is one of the lowest in the industry.
Analysis by FDC shows UBA’s interest income increased by 24.27 percent year on year (YOY) to N150.0 billion, in 2012; was up by 19.22 percent to N185.70 billion, in 2013; moved by 5.50 percent in to N196.68 billion, in 2014; spiked by 18.95 percent to N233.96 billion, in 2015. This translates to a CAGR of 19.80 percent between 2012 and 2015.
Despite creeping inflation, forex uncertainty, rising unemployment and bleak economic prospects, UBA maintained a steady growth at the bottom line.
Net income surged by 24.25 percent to N59.65 billion in December 2015 as against N47.90 billion as at December 2014. However, profit was flattish in the first quarter of 2016 at N16.90 billion.
“Its share price has declined by about 20% due to investor concern and pervading economicuncertainty. Given UBA’s revenue potential, recent performance, extensive network and branch system, large customer base, robust risk management framework and exceptional management, it is a company with an immense upside. Accordingly, we place a BUY rating on the stock,” said analysts at FDC.
Nigeria, African largest economy has been grappling with economic lethargy caused by a more than 60 percent fall in the price of oil to $42 a barrel. Oil accounts for two thirds of government revenue and 90 percent of exchanging earnings.
Banks were severely affected by the uncertainties in the global oil markets as credit facilities were granted to oil companies when prices were above $100 few years ago but fell drastically mid last year.
This means collateralized assets lost with the attendant negative implications on assets quality.
First Bank Plc, the largest lender by assets has NPLs of 22 percent as at March 2016, from 2.2 percent the previous year.
With the adoption of a flexible exchange rate policy by the Monetary Policy Committee of the CBN, analysts believe the new normal will have a positive impact on banks performance.
